Paradigm Shift: As America’s Rich and Poor Decoupled, Jobless Left High and Dry

Like Tony Soprano and his crew, the amped-up, swaggering Republicans in Washington are taking over the joint and laying down the rules.

Until the Democrats surrender on some $700 billion in tax breaks to the very richest, nothing passes in the Senate. That includes no year-long extension of unemployment compensation for millions of jobless people who are running out of benefits, including 2 million families hit just in time for Christmas. You gotta problem wit' that?

Congressional Republicans are taking an extraordinarily hard line. But the situation goes far deeper than cocky, ideology-fueled Republicans trying to take advantage of the Democrats' surrender-monkey syndrome (as discussed here, here, and here.) What we are witnessing is a paradigm shift: The Republicans' intensifying disregard for the plight of the unemployed reveals the diiminishing interest of the GOP's cororate sponsors in the rest of America.

As the Republicans hold unemployment benefits hostage in order to shake loose $700 billion for those earning $250,000 or more, three exceptional things about the current political/economic moment strike me:

1) Never before have extended benefits been blocked when the jobless rate has reached 7.2% or higher.

The current high unemployment, which just jumped .2% to 9.8%, and will drag on for several more years, is taking an enormous toll on the physical and pschycological health of the jobless and their families. Fully 42% of the unemployed have been jobless for six months or more. In the past, extended unemployment benefits have always been approved by Congress, even when the jobless rate has been as low as 4.9%.

2) Never before have corporate leaders been less concerned with maintaining the buying power of the jobless.

Normally, CEOs are in a rush to restore spending power among U.S. consumers in order to generate economic activity escape a major downturn. Unemployment benefits have proven to be a highly efficient means of stimulating the economy, infinitely more effective than tax cuts for the rich, whom the Republicans revere as "job creators," although they are more likely to pad their savings accounts.

Both the Congressional Budget Office and the Labor Department study conclude that for every dollar spent on unemployment benefits, the gross domestic product grows by roughly $1.90 to $2.00.

Further, outlays for unemployment compensation generate so much economic activity–and increased tax revenues–that a large portion of their cost would be recouped:

[The Economic Policy Institute] calculates that even though extending the federal programs may cost $65 billion for next year, the real cost is about $26 billion, since governments will take in more tax and pay less for social services.

The proposed UC extension would generate the equivalent of about 723,000 full-time jobs, estimates the EPI.

3) The fight over extended benefits is occurring at a time of record profits and unrivaled riches not seen since the Gilded Age of the late 1800's.

The Great Recession has become a split-level affair: As the New York Times reported last week, Corporate America earned all-timerecord profits in this year's third quarter and is on course for a record $1.659 trillion for all of 2010:

America's richest 1% now hauls in almost 24% of the nation's income More than 80% of the total increase in American incomes 1980 to 2005 was scooped up by that richest 1 percent. Nicholas Kristof points out,

As Timothy Noah of Slate noted in an excellent series on inequality, the United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana.

Ultimately, the curent intertwining of tax cuts for the richest 2% with the threat to block unemployment compensation for millions of people already living precariously on the edge of survival, reveals some troubling truths about our society. It reflects the growing secession of Corporate America and big investors from their fellow American workers, consumers and citizens. This seccession was enabled by Republicans and a considerable number of Democratic leaders as well.

This CEO class views the rest of us as highly replaceable parts, whose value is sinking daily relative to costs in Mexico, China, and India. The pain of the jobless—from the humiliation of parents who have lost their careers and often their homes, to anxieties about paying for heat, healthcare and for Christmas presents—are usually no more than a distant abstraction to America's CEOs.

From enlightened self interest to shameless greed

The origin and history of federal unemployment insurance illuminates how much has changed during the last 75 years.

After national unemployment compensation was enacted as part of the New Deal in the 1930s, Republicans and their corporate funders reluctantly came to recognize their self-interest in giving the jobless some funds to spend and generate economic activity to help climb out of an economic trough.

The conservative Federal Reserve chairman Ben Bernanke outlined the traditional view recently: "Prolonged high unemployment would pose a risk to consumer spending and hence to the sustainability of the recovery."

Conservatives were also persuaded that unemployment benefits were needed to head off food riots, street-fighting with the police, and escalating radicalism among the unemployed that was widespread in the 1930s.

But during the deep Reagan recession in the early 1980s, Reagan and other Republicans came up with an inventively regressive rob-Peter-to-pay-Paul scheme to deal with the shortfall in federal funds: taxing UC benefits to help provide support the UC system, while of course much of their corporate contributors' income went untaxed. Moreover, the percentage of workers covered by UC continued to erode, down to its present level of 43%. But extensions of unemployment benefits were never cut off while unemployment remained high.

That is, up until now—when the unemployed are being used as bargaining chips by Republicans to extract $700 billion in tax cuts to add to their paymasters' fortunes.